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Vienna Initiative: New Working Group on Capital Markets Union for CESEE Region

March 6, 2017

The Vienna Initiative has agreed to establish a Working Group on Capital
Markets Union. This follows the European Union’s push to strengthen capital
markets which will have a major impact on financing of investment and
sustaining growth in the Central, Eastern and Southeastern Europe region
(CESEE). “Strengthening and diversifying sources of finance is crucial in
the region today, as the regional catching up process advances and a new
model for growth emerges”, commented Werner Hoyer, the President of the
European Investment Bank (EIB), which is hosting this year’s Vienna
Initiative 2 Full Forum at its headquarters in Luxembourg.

All members of the Forum expressed their strong commitment to the work of
the new working group, which will report by the end of 2017. The working
group will help to promote the diversification of investment finance in the
region, mobilize the Vienna Initiative network to analyze structural
obstacles and regulatory gaps impeding capital market development in the
CESEE region and identify solutions at the national and regional levels.

The Vienna Initiative was founded at the height of the global financial
crisis of 2008/09 as a private-public sector platform to secure adequate
capital and liquidity support by Western banking groups for their
affiliates in CESEE. The initiative was relaunched as “Vienna 2” in January
2012 in response to renewed risks for the region from the Eurozone crisis.
Its focus is now on fostering home and host authority coordination in
support of stable cross-border banking.

The Vienna Initiative Forum also looked into investment dynamics,
priorities and constraints in the region and discussed how new instruments
provided by the international financial institutions, focusing on
environment, infrastructure, innovation and SMEs can supplement existing
funding models. The Vienna Initiative will study further the design of
financial instruments to support investment in the CESEE region and beyond.

A further topic, which was discussed in Luxembourg, was the recent
evolution of bank regulation in home countries and at the global level. The
Forum discussed the issue of unintended impediments to cross-border banking
due to prudential restrictions on the cross-border flow of capital and
liquidity within banking groups. The commercial bank group participants
also noted that the increasing number of national regulatory initiatives in
some CESEE countries have had some unintended negative consequences. The
Forum received an update on the non-performing loans (NPLs) Initiative
work-stream of the Vienna Initiative, which reported substantial
achievements in enhancing the transparency of restructuring frameworks,
building capacity through coordinated technical assistance, and sharing
knowledge. All of this has partly led to a recent abatement of NPLs in the
region and has helped to deepen the secondary market for NPLs, with sales
of NPLs reaching EUR 7.3 billion over the last eighteen months. The Forum
also discussed recent NPLs dynamics and regulatory moves at the European
Union level.

The Forum also took note of the fact that the economies of the region all
showed fairly strong growth in 2016, and that this is expected to continue
in 2017. Banking developments have supported this positive outcome. Overall
deleveraging by parent banks, which started more markedly in 2011, has now
largely come to an end, while domestic deposits have been growing, thus
ensuring banks operating in the region have sufficient funding, while
becoming less dependent on parent bank funding. Boris Vujčić, Governor of
the Croatian National Bank and recently appointed Chairman of the Vienna
Initiative Steering Committee, stressed: “The Vienna Initiative has been
important in helping the countries of the regions and their banking systems
to cope with the changing pressures of recent years. I am confident that
the current work priorities – monitoring funding in the region, adapting to
the Banking and Capital Market Unions, broadening the successful work on
NPLs, and mobilizing new investment instruments – will continue to provide
substantial benefits to all participants in the period ahead.”

Participants of the Full Forum included representatives of Albania,
Austria, Bosnia and Herzegovina, Croatia, Greece, Hungary, Kosovo, FYR
Macedonia, Montenegro, Poland, Serbia, Slovakia, Slovenia, and Ukraine;
major bank groups operating emerging Europe: Erste, Intesa Sanpaolo, KBC,
Raiffeisen, Société Genérale, and UniCredit, National Bank Greece,
Eurobank; as well as the European Commission, the European Council, the
EBRD, the EIB, the International Monetary Fund, and the World Bank Group.
The EBA, ECB, ESM and the BIS participated as observers.